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Gold Pulls Back On PPI, Retail Sales

January 13th, 2017 by

Gold prices lost their overnight grip on $1,200 this morning, after wholesale prices and December retail sales lifted expectations for inflation and economic growth in 2017.  Gold prices were trending around the $1,190 mark, which put spot gold more than $5 lower, before recovering to $1,194/oz. February COMEX gold futures were meanwhile down around $9. Both spot and futures prices gained a bit more than $3 an ounce on Thursday.

Gold prices have gained as much as $25 an ounce this week, so any excuse to book a little profit would do. In other metals, spot silver gained a nickel yesterday, while COMEX silver contracts were flat. The argent metal is essentially flat on Friday, trading at $16.80/oz. Platinum and palladium both gave up earlier gains on the spot market, while futures settled 0.9% and 1.5% higher, respectively.

Retail Sales, Producer Prices

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Credit: c_ambler [CC-BY 2.0]

News that retail sales in December rose 0.6% compared to November helped stocks open higher on Wall St. Compared to December 2015, retail sales increased by 4.1%. For the year, retail sales were 3.3% higher. Higher than expected auto sales were a major driver of the increase.

Even more influential was wholesale prices. The Producer Price Index (PPI) for December rose by 0.3%, following a 0.4% rise in November. Compared to December 2015, wholesale prices gained 1.6%. This is the third month out of four that shows gains in the PPI. Producer prices for 2016 as a whole gained 1.6%, compared to a 1.1% loss in 2015.

Most of the credit for these gains go to higher energy prices. Producer prices are seen as a precursor to retail prices, and therefore inflation. Higher wholesale prices are also seen as an early indicator of what direction Federal Reserve interest rate policy will move. The uptick in inflation expectations has elicited some of the most unqualified optimism from Fed officials in recent memory.

Outside Markets

On Friday, crude oil was still sliding lower as the market comes off of its highs from the December rally. West Texas Intermediate (WTI) traded about 0.7% lower this morning at about $52.50 per barrel. Meanwhile, the dollar was just slightly higher on the DXY index, registering 0.13% higher at nearly 101.5.

The Trump Effect, especially expectations that his deficit spending policies will create inflation, are already paying dividends in banking stocks. JP Morgan and Bank of America both reported better than expected earnings and revenues this morning, adding to early support for stocks. This represents a reversal of fortunes for the big banks, which were battered by a slew of bad headlines in the middle of 2016. Wells Fargo, however, saw a sharp drop in profits and revenues across the board, with far fewer account openings and credit card applications in the fourth quarter. Still, the bank has risen 20% from its lows prior to the presidential election.

With the Martin Luther King Jr. holiday falling on this coming Monday, banks and markets will be closed in the U.S., creating a three-day weekend for many traders.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.